The Impact of Audit Quality on Narrative Disclosure: Evidence from Egypt

This study examines the impact of audit quality on narrative disclosure through brining evidence from an emerging African market, whose cultural, economic and institutional context is very different from most of the previously analyzed countries’ contexts. The current study relied on content analysis of the annual reports of nonfinancial firms listed on the Egyptian stock exchange during the period 2012-2016 to measure narrative disclosure. Regression results show that in emerging developing countries, audit quality can function differently from the case in developed and stabilized countries with regard to its role in enhancing corporate narrative disclosure. The results indicated that, given the unique institutional environment in Egypt, audit quality has no significant effect on narrative disclosure. In addition, in contrast to the literature, we found that company’s size has a negative relationship with level of narrative disclosure of that company. We also found that companies with high financial performance increase the level of narrative disclosure. This study provides readers with information about if and how the institutional setting can influence the relationship between audit quality and corporate non-financial disclosures. This study’s findings could provide valuable information to regulators and standards setters, both in Egypt and other emerging markets with a similar institutional environment, which can ultimately help in enhancing the quality of corporate reporting.